• Producer Price Inflation rose to 7.6 percent in June.
• Economic sentiment witnessed recovery.
• Money Market Returns remained relatively stable.
• GSE closed on a positive note.
• Ghana cedi advanced against the British pound and the Euro.
• Gold upped its value, but Brent crude oil, Cocoa and Coffee dropped. 

Macroeconomic Update

Producer Price Inflation rose to 7.6 percent in June

Producer price inflation for June settled at 7.6 percent, representing a 0.9 percentage point rise relative to May’s rate of 6.7 percent. The inflation uptick was spurred by rising input cost at the mining & quarrying and utilities sub-sectors of the economy as well as instability of the local currency. The producer price inflation (PPI) for the mining & quarrying sub-sector thus increased from 15.1 percent to 22.4 percent in June. That for the Utilities sub-sector rose by 0.1 percentage point to settle at 1.2 percent in June. The PPI for the manufacturing sub-sector which constitutes two-thirds of the total Ghanaian industry however, dropped by 0.1 percentage point to record 6.1 percent and this was on the back of the general price declines in input cost for the manufacturing of electrical machinery, wood & its products, publishing & printing and coke and refined petroleum products.  Presented below is a 1-year trend movements of the PPI:

Economic sentiment witnessed recovery

The recently released data from the Bank of Ghana indicates an improving sentiment in the domestic economy. The Composite Index of Economic Activity, which measures short term dynamics of the Ghana economy and aids in monetary policy review, saw an uptick in economic activity in the first 5-months of 2019. The index which stood at 2.4 percent in December 2018, jumped to 4.0 percent after the first quarter of 2019. This however, declined to 2.7 percent in April, mainly on account of market reaction towards the depreciation of the local currency and threat of rising crude oil on the domestic market, but rebounded to 3.2 percent in May 2019. On the back of this, Consumer Confidence Index of the domestic economy has improved from 98.3 points in December 2018 to 99.2 percent in May 2019. That for Business Confidence Index however, declined to 94.1 points in May 2019 from the 97.3 points recorded in December 2019.

Money Market Returns remains relatively stable

According to data recently released by the Bank of Ghana, money market interest rates has generally been stable despite rising cost of credit. Between December 2018 and June 2019, interest rate on Government of Ghana treasury securities has generally risen but at a marginal pace. The yield on the 91-Day T-Bill which stood at 14.56 percent in December 2018 has risen to 14.75 percent, up by 19 basis points. Rates on the 182-Day T-Bill rose from 15.02 percent in December 2018 to 15.23 percent in June 2019. Yield on the then 1-year note which closed 2018 at 15.00 percent was 17.92 percent in June 2019 on the 364-Day T-Bill.

Ghana’s monetary policy rate has been maintained since the beginning of the year at 16 percent despite inflationary pressures and this has compelled the central bank to lower its interbank weighted average rate from 16.12 percent in December to 15.20 percent. Despite this move, average lending rate assumed an upward trend from 26.86 percent in December 2018 to peak at 27.80 percent and eventually settle at 27.68 percent, above the Ghana reference rate of 16.18 percent. It is imperative for Government to enforce that such rate moderation to commercial banks are transmitted to consumers and businesses to further stimulate economic activities in the domestic economy.

Source: BOG; MOFEP; GSS.     * represents provisional estimate

Government of Ghana Treasury Securities

NB: The above are the annual yields on Government of Ghana Treasury Securities.

At the close of the week’s auction, yield on the GoG treasury securities remained unchanged with the yield on the 91-Day T-Bill steadied at 14.73 percent. Interest rate on the 182-Day T-Bill stood at 15.17 percent and that for the 364-Day T-Bill at 17.87 percent. The yield on the Government’s treasury bonds and notes also remained unchanged. 

An amount of GHS788.98 million was raised by the Government after accepting all the tendered bids.  This slightly exceeded the week’s target of GHS785.00 million. The 91-Day T-Bill was the most accepted bid constituting 66.50 percent of the overall bids. An amount of GHS820.00 million is expected to be purchased by the Government in the upcoming auction.

The yield curve sustained its normality, and this is further expected to be maintained despite data suggesting a general rise in interest rate since January 2019. The uptick in interest rates on the GoG treasury securities recorded in the first half of 2019, may not necessarily stimulate further rise in yields as market alternatives for investment activities appears to be dimmed following a downtrend in the equity market and persisting uncertainties surrounding the financial markets. The general improvement in market sentiment as measured by the Bank of Ghana Composite Index of Economic Activity may compel investors to accept bids at lower rates from Government. 

Ghana Stock Exchange

The GSE witnessed a rebound due to a rise in demand for stocks in MTN Ghana Ltd and some financial stocks in the week under review. Positive earnings report by the Republic Bank Ghana and the Trust Bank Ghana Ltd raised market anticipation of other stocks following suite with expectation-beating-earnings and this helped closed the market in the gains. At the closing bell, the GSE Composite Index thus recorded a week-on-week gain of 1.48 percent to settle at 2,353.09 points, reflecting a year-to-date loss of 8.52 percent. The GSE Financial Stocks Index similarly rose by 2.17 percent to an index level of 2,047.85 points, reflecting a lower year-to-date loss of 4.92 percent.  

Market activities improved over the previous week’s records. A total of 2.86 million shares valued at GHS5.87 million exchanged hands as against the 1.52 million shares worth GHS5.42 million traded in the week ended 12^th July 2019. Guinness Ghana Brewery Ltd dominated market activities in terms of volume recording 84.89 percent of the overall trades. Market capitalization rebounded by 0.60 percent to GHS58,304.91 million on account of the general positive closure of the market.  

Stock Price Movements

A total of ten equities changed prices. Ecobank Ghana Ltd gained 50 pesewas to trade at GHS8.00 per share. Access Bank (Ghana) Ltd followed suite with 44 pesewas rise to trade at GHS3.34 per share. CAL Bank Ltd and Enterprise Group Ltd upped their share prices by 3 pesewas and a pesewa to trade at 98 pesewas and GHS2.10 per share respectively. Guinness Ghana Breweries Ltd, MTN Ghana Ltd and Société Générale Ghana Ltd also increased their share prices by a pesewa after the week’s trade.

Standard Chartered Bank Ltd on the flip side dropped by 25 pesewas to trade at GHS19.00 per share. Benso Oil Palm Plantation Ltd and Fan Milk Ltd declined by 19 pesewas and 3 pesewas to settle at GHS3.20 and GHS4.48 per share respectively.

Currency Market

Source: Bank of Ghana 19.07.19

The interbank currency market ended with the Ghana cedi advancing against the British pound and the Euro but lost marginally to the US dollar. The US dollar was on the defensive as dovish commentary by both US Fed and International Monetary Fund weighed on the outlook of the greenback. The indication by the US Fed to significantly cut interest rate for the first time in a decade in the upcoming monetary policy review, due to cooling inflationary pressures and threat from the trade tariff war on US economic activities lowered demand for the US dollar. The International Monetary Fund’s annual assessment of currencies and external surpluses and deficits of major economies indicated rising public deficit in the US and overvaluation of the dollar. Despite this, the US dollar to appreciate by 0.01 percent as it traded at GHS5.26 on the interbank currency market. The year-to-date depreciation of the cedi thus increased to 8.28 percent.  

The British pound posted another round of weekly depreciation on the international commodities market despite a strong retail sales data for the month of June. The pound sterling continued to be very volatile owing to Brexit related risk as it dropped to a twenty-seven-month low following indication by Boris Johnson and Jeremy Hunt to pursue a hard-deal Brexit after a win in the upcoming election to replace Theresa May. The extent of the pound’s loss was however, trimmed as retail sales data for June rose to 1.0 percent (month-on-month) above the forecasted 0.03 percent contraction. The pound thus depreciated by 0.42 percent to trade at GHS6.57 on the interbank currency market. The year-to-date depreciation of the cedi thus narrowed to 6.08 percent.

The Euro dimmed its outlook on the international currency market due to rising expectation for a rate cut. The commitment by European Central Bank to pursue a loosening monetary policy beyond that expected in the US economy subdued market sentiment to spark selling of the currency. This was due to policy makers concerns over the persisting decline in major economic data from the bloc and the recent dwindling economic sentiment in Germany as its ZEW Economic Sentiment declined from -21.1 in June to -24.5 in July. The Euro thus depreciated by 0.24 percent to trade at GHS5.90, the year-to-date depreciation of the cedi declined to 6.50 percent.

International Markets

Trading on the US equity market closed in the red due to signal by the US Fed to trim interest rate by only a quarter-percentage point at the end of the month far below investors expectation. This signal shifted demand from safe-haven asset buying for equities. The S&P 500 thus declined by 1.23 percent to settle at 2,976.61 points with Alliance Data Systems Corporation and Pacific Gas and Electric Company Ltd recording the worst performances. The Dow Jones Industrial Average also posted a week-on-week decline of 0.65 percent to settle at 27,154.20 points with American Express Company and Travelers Company Inc. being the least performing stocks.  

The London Stock Market rebounded as last Friday’s oil price recovery on the international commodities market buoyed demand for mining and oil stocks. The positive closure of the FTSE 100 was also supported by the soft pound as it presented an opportunity for multination to buy stocks at much lower prices. The FTSE thus recorded a week-on-week gain of 0.04 percent to settle at 7,508.70 points.

The Japanese Stocks Exchange tumbled on account of the interest rate cuts in the Asian market. In the week under review, the Bank of Korea unexpectedly trimmed its interest rate on the seven-day repurchase from 1.75 percent to 1.5 percent. This followed downward revision of its GDP from 2.5 percent to 2.2 percent and inflation from 1.1 percent to 0.7 percent. The Nikkei 225 thus dropped by 1.01 percent to settle at 21,466.99 points.

On the African equity market, the Johannesburg All Share Index upped by 1.70 percent to settle at 58,248.73 points. The Nairobi All Share Index also upturned by 0.06 percent to an index level of 149.82 points. The Nigerian All Share Index however, dropped by 2.27 points to close at 27,919.50 points.

International Markets

Source:www.bloomberg.com, & www.investing.com

Brent crude oil fell to a seven-week low as the likelihood of a trade truce between the US and Iranian governments will result in the removal of sanctions imposed on Iran sapping demand for the commodity in the week under review. Brent crude Oil thus slipped by 0.75 percent to settle at $62.02 per ounce.

Gold hit a six-year high as heightened speculation of a rate cut by the US Fed owing to inflationary pressures and geo-political tensions following the reported shooting down of an Iranian drone by the US buoyed investor’s demand for the haven commodity. Gold thus surged by $10.90 to trade at $1428.55 per ounce.

Cocoa closed higher on the international commodities on account of dry weather conditions and below-average rains in major growing areas of Top Grower-Ivory resulting in suspension of forward contract sales due to concerns about the size of the crops ahead of the October-to-March season. Cocoa thus upturned by 2.73 percent to trade at $2,468 per metric tonne.

Coffee slipped in the week under review mainly driven by reports of a major decline in exports for the first quarter of 2019 in Vietnam to record a total output of 943,000 tonnes of coffee valued at US$1.6 billion in 2019, representing a 19.9 percent decline (YOY) due to a global glut. Coffee thus dipped by 2 cents to trade at $1.07 per pound.